Connecticut IOLTA Trust Accounting Requirements

Connecticut IOLTA trust accounting rules are detailed in Connecticut Practice Book, Rules of Professional Conduct, Rule 1.15.

Section 1.15.J requires the following items

General Ledger J.1 – Chronological report of all deposits and withdrawals from the trust account with a running balance.

Client Ledger J.2 – Client level chronological report of all deposits and withdrawals with running balances.

Copies of bank statements, images of deposited items, and copies of cleared checks J.7

Section J.10 would include the triple reconciliation summary used to tie the ending bank statement balance to the general and client ledgers.  Aggregate deposit and withdrawal reports are also covered by this section.

These requirements are included in our Example IOLTA Trust Account Reconciliation and introduction video.

 

Connecticut Practice Book

(j) A lawyer who practices in this jurisdiction shall maintain current financial records as provided in this Rule and shall...

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Example IOLTA Trust Account Reconciliation

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Complete examples of IOLTA Trust account reconciliations are rare.  Our intro video provides a quick overview of a complete IOLTA Trust account reconciliation.  Use the button below to download a copy of the example reconciliation used in the video.

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Automated, Paperless Accounts Payable Process for Law Firms

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We help law firms pay vendor bills by automating their accounts payable process. This video provides an introduction to our processes and software tools.

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S Corps for Law Firms – Self-Employment Tax Savings

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S Corps Control Social Security and Medicare Taxes

When a law firm is taxed as an S Corp, the primary tax savings are achieved by controlling social security and medicare taxes.

Law firm owners must pay the social security and medicare taxes withheld from employee paychecks and they must pay the social security and medicare taxes matched by the employer.

For 2014, Social Security and Medicare taxes consist of:
6.20% Employee Portion for Social Security (6.2% of first $117,000)
6.20% Employer Portion for Social Security (6.2% of first $117,000)
1.45% Employee Portion for Medicare (1.45% of all net income)
1.45% Employer Portion for Medicare (1.45% of all net income)

15.3% Total

Schedule C and Partnership Self-Employment Tax

When a law firm is taxed as a sole proprietorship (Form 1040, Schedule C) or a partnership (Form 1065) all net income is subject to self-employment tax.

Example
Law firm taxed as sole proprietorship on Form 1040, Schedule C.
Law firm net income is $150,000.
...

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Recording Client Costs in QuickBooks Online

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For many of our law firm accounting clients, we record all QuickBooks transactions.  Some firms prefer to directly record client costs in QuickBooks.  This video provides a guide for recording law firm client costs in QuickBooks Online.

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Print IOLTA Trust Account Draw Checks from QuickBooks Online

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Print Law Firm Deposit Slips from QuickBooks Online

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Print Law Firm Overhead Checks from QuickBooks Online

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S Corps for Law Firms – S Corp Costs

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Choosing to be taxed as an S Corp does trigger several additional costs.

Payroll Service

S Corp owners are required to receive wages through payroll checks.  If the law firm does not have a payroll services in place, a payroll service must be started.

Unemployment Taxes

Once the firm owner is on payroll, their wages are subject to state and federal unemployment taxes.  Arizona unemployment rates start at 2% of the first $7,000 of wages for an annual total of $140.  Federal unemployment taxes are .6% of the first $7,000 of wages for an annual cost of $42.

Workers Compensation Insurance

Most states allow business owners to opt out of the worker’s compensation insurance that is normally required for all employees.

Income Tax Preparation Costs

Filing an S Corp Tax return is more complex than filing a schedule C.

 

All additional costs are tax deducible.

All of the above costs are tax deductible.  If the owner’s federal and state tax rate is 35%, a...

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S Corps for Law Firms – Reasonable Salary

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What’s a reasonable salary for the owner of a law firm?

The IRS won’t specifically define reasonable, there are only guidelines.  The IRS notes that the courts have considered the following facts when reviewing salary levels:

  • Duties and responsibilities.
  • Time and effort devoted to the business.
  • Dividend payment history.
  • Payments to non-owner employees for similar work.
  • Timing and manner of paying bonuses to key people.
  • Payment by comparable businesses for similar services.
  • Compensation agreements.
  • Usage of a formula to determine compensation.

Thankfully, you’ll find a wide pay range that you can prove to be reasonable.  A top indicator is the amount that your firm would pay a third-party employee to do the job.  You can find documentation in job ads, trade surveys, from headhunters, or internet services like Salary.com or PayScale.com.

The key is documenting proof of a reasonable salary by gathering facts to support the salary taken,...

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